Startup Contests Are Not for Everyone
If not carefully selected, a startup contest could hold more risk than value
Startup contests have become so popular in recent years that they almost seem to be a prerequisite for anyone trying to build up a startup. But there are serious repercussions to consider before you decide to sign up for the next competition.
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Let’s start with taking apart that old saying about “no bad publicity." Exposing your startup to the public too early in the process can be risky. This is especially true if you have developed a patentable technology.
Any disclosure of your company's technology before filing a patent application can jeopardize your patent. While I am a big believer in sharing your idea to get feedback and advice, I recommend airing on the side of caution when sharing an idea with the hundreds of people that are involved or follow startup contests. A good tip is never to disclose more than what’s necessary.
Even without jeopardizing your idea, big exposure before your company is ready for it can be problematic. If you are not ready to efficiently explore the connections and opportunities that a contest presents to you, then you might be burning down important bridges in what can sometimes feel like a tiny industry.
Even if the potential exposure is not an issue, you should still consider whether each specific contest can provide you with the edge you are looking for and whether that edge justifies the cost. In many cases, contests are the entrance point to an accelerator or another startup support program that will offer the winners a variety of services in addition to cash prizes. Usually, such programs will ask for equity in return so they can benefit from your success.
The above concept is fair, but you should carefully check the terms of the investment offered to the winners in each contest you are considering. This includes the valuation on which the investment will be based, any veto rights or another form of control you are expected to give to the organizers, future options to invest in your startup and any other special conditions.
It is also very important to make sure that you need all of the services you stand to receive if you win. You might be able to find similar or better services for a better company valuation elsewhere. Remember also that if you enroll in a program, you will not be able to choose your service providers.
Sometimes, the most important service a contest offers are connections. Good connections can make or break a young startup. Do some research to find out if the people behind the contest can take you there. It is important to know whether this is the first time the contest is being held and if it has a history, what happened to the winners from previous years?
A startup contest can be a wonderful opportunity to get feedback, meet competitors, learn about your industry and make sure you are well organized, equipped with a great investors deck and ready for your next step. However, not every contest is right for you and not every win means real progress. Participating in a startup contest takes a lot of time and energy. Make sure you are not wasting them.
Adv. Zachi Zach is a lawyer and a mentor in the online industry, specializing in online gaming, adtech, ecommerce and other online related fields. Among others, Zachi serves as Of Counsel to the law firm of Pearl Cohen, an international law firm with offices in the US, Israel and the UK.
Zachi is also the author of The Online Startup blog: www.zachizach.com.